The events leading up to the Lok Sabha Elections 2024 and their unexpected results reminded brokerage house Motilal Oswal (MOSL) of the epic series “Game of Thrones.”

The brokerage noted that even though the incumbent party failed to cross the majority mark on its own in its third term, it still retained its spot of being the largest party with the highest vote – subduing the fear regarding meaningful deviation from the stated policies.

MOSL continues to hold the view that a multi-asset investment approach would prove to be an ideal one to cushion the volatility in the evolving and domestic scenario.

Earnings across different market-cap indices have been robust over the last 3 years and the forward earnings outlook also looks decent, it observed. Moreover, considering the recent run-up in the momentum-driven themes & valuations trading near the LT average (for largecaps), it suggests a staggered investment strategy of 3 to 6 months for large & multi-cap strategies and 6 to 12 months for select mid & small-cap strategies.

“Equity market outlook continues to remain positive based on deleveraging of Corporate Balance Sheets, uptick in Capex cycle and an expected steady trend in profit growth over the next few years. However, in the current uncertainties, it is advisable to tread with caution by adopting a strategy which is balanced and resilient in turbulent times. Based on their risk profile, investors having the appropriate level of Equity allocation can continue to remain invested” it suggested.

The most optimum lumpsum deployment strategy could be through the Multi-Asset & Balanced Advantage category of funds, taking exposure across asset classes, it advised. For fixed income, MOSL reiterates its view that core fixed income allocation can remain tilted towards duration through active and passive strategies.

For gold, MOSL believes that geopolitical tensions continue to add a risk premium to prices. Central bank buying has been one of the major contributors to the recent rally. Also, the Fed rate cut delay could dent hopes for a sharp rally in gold. It recommended a bullish outlook on gold targeting $2,600 – $2,650 by year-end.

Election and Markets

The brokerage pointed out that in Lok Sabha Election 2024, BJP emerged as the largest party, however, unlike in 2014 and 2019, fell short of the majority mark on its own. A coalition government will be formed after two terms. But, with less no of coalition partners compared to previous coalition governments & BJP still being the dominant party – the approach to governance could be smooth.

Before having a clear mandate in 2014, the country was governed through coalition governments since 1989 (25 years), observed MOSL. During the above period, the Sensex has compounded at a CAGR of 15 percent, and even during the last 10 years of having a majority, it has compounded at a decent pace of 13 percent, highlighted the brokerage.

Considering daily returns of the Nifty 50, there have been 32 instances since 2000 where the index has dropped by 5 percent or more. Historically, the index has posted negative returns over the subsequent three-year period only three times after such a decline. Since 2008, the markets have predominantly delivered double-digit returns over these three-year periods.

Fixed Income Portfolio Strategy

MOSL reiterates its view to have a duration bias in the fixed income portfolio so as to capitalise on the likely softening of yields in the next 1-2 years. 65-70 percent of the portfolio can be invested in a combination of:

– Actively & Passively managed debt strategies to capitalise on duration and accrual as per the evolving fixed-income scenario

– Equity savings funds/conservative multi-asset funds which aim to generate enhanced returns than traditional fixed income with moderate volatility through a combination of equities, arbitrage, fixed income, commodities, REITs/InvITs, it advised.

Furthermore, to improve the overall portfolio yield, 30–35 percent of the overall fixed income portfolio can be allocated to select high-yield NCDs, Private Credit strategies & REITs/InvITs. For liquidity management or temporary parking, investments can be allocated to Floating Rate (minimum 9-12 months) Arbitrage/Ultra Short Term (minimum 6 months)/Liquid (1-3 months)/Overnight (less than 1 month) strategies, it recommended.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.